Avoid Commodities Mania -- Go For Quality (ETF: DBC; CEFs: CEF, GGN)

Includes: CEF, DBC, GGN
by: Roger Nusbaum

Roger Nusbaum submits: Chip Hanlon was just on CNBC talking about commodities and investor demand for commodities.

He drew a parallel between commodity stock excitement today and Internet stock excitement six years ago. I did not take his meaning to be that they are identical manias but he sees similarities. I think the magnitude is much less than six years ago but he made an excellent point that stands up right now.

He talked about secondary and tertiary names making moves higher on speculation. The idea here is that investors are buying lower quality names to chase returns. In that sense, it is like the tech boom. Too much invested in these types of stocks could have a very bad ending.

I hadn't thought about it before, but a friend of mine is doing just that, chasing returns. He tells me all the time about all these Canadian stocks he is trading. I'm sure he is making money but I don't know if he learned anything from the tech wreck in which he got torched.

A 1 percent weight in a couple of very speculative commodity stocks will not crush a portfolio, but there will be (if there aren't already) a lot of investors with way too much in these low quality names.

For anecdotal evidence, watch the Nasdaq/Amex ticker on CNBC and you will see all sorts Amex listed mining stocks going by. The number of trades in these things is very high. Watch out.

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